Introduction to Company Accounts

Issue of Debentures

Debentures are the long term (sometimes medium term also) fundraising instruments. In legal terms, a debenture is nothing but a document that generates liability. It is nothing but a certificate of debt showing the fact that the company is liable to pay a certain amount with interest. The debenture holder can independently transfer the debentures. Unlike the shareholders, debenture holders don’t have any voting right in the company. In this article, we will discuss the debenture issue.

Issue of Denbenetures

Debenture Issue

There are certain steps for the complete purchase of debentures by a person in his own name. It involves the investors applying for security (debenture) according to the prospectus of the company.

Sometimes, the company asks for the entire amount with the application only but generally, the company does it on an installment basis. There are 3 means to issue them which are as follows :

  1. Issuing Debentures at par
  2. At premium
  3. Issuing Debentures at a discount

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At Par

When the payment received and the nominal value of the debentures are similar or equal then it is the case of ‘Issue of Debentures at Par’. In other words, it is when the issue price is similar to the face value of the debenture. E.g., Issuing Debentures of Rs.1,000 for Rs.1,000.

There are different journal entries in connection with issuing debentures.

1. On receipt of Application Money

Date Particulars L.F. Amount Dr. Amount Cr.
Bank A/c                                                                 Dr.  XXX
     To Debentures Application A/c                    Cr.  XXX
(Being receipt of the application money on debentures @Rs. per debenture)

2. On allotment, transfer to Debentures A/c

Date Particulars L.F. Amount Dr. Amount Cr.
Debentures Application A/c                            Dr.  XXX
     To Debentures A/c                                        Cr.  XXX
(Transfer of application money on debentures adjusted to the debentures account.)

3. Amount Due on Allotment

Date Particulars L.F. Amount Dr. Amount Cr.
Debentures Allotment A/c                               Dr.  XXX
     To Debentures A/c                                        Cr.  XXX
(Being the allotment money due on debentures)

4. Receipt of debenture allotment money

Date Particulars L.F. Amount Dr. Amount Cr.
Bank A/c                                                              Dr.  XXX
To Debentures Allotment A/c                         Cr.  XXX
(Being the receipt of debenture allotment money)

5. Amount Due On First Call

Date Particulars L.F. Amount Dr. Amount Cr.
Debentures First Call A/c                              Dr.  XXX
     To Debentures A/c                                    Cr.  XXX
(Being the due of the first call money on ___ debentures @___)

6. Receipt of Debentures First call money

Date Particulars L.F. Amount Dr. Amount Cr.
Bank A/c                                                           Dr.  XXX
     To Debentures First Call A/c                   Cr.  XXX
(Being the receipt of debentures 1st call amount)

At Premium

When a company issues security at a price higher than the nominal value, it is called the ‘Issue of Securities at Premium’. Hence, the extra issue price over the face price is the amount of Securities Premium Reserve.

Debenture issue

Journal Entry in Case of Issuing Debentures at Premium:

Amount Due on Allotment (Along with Premium)

Date Particulars L.F. Amount Dr. Amount Cr.
Debentures Allotment A/c                               Dr.  XXX
     To Debentures A/c                                       Cr.  XXX
     To Security Premium Reserve A/c           Cr.  XXX
(Being the allotment money along with premium due on debentures)

Solved Question on Issue of Debentures

Question: What do you mean by issuing ‘Debentures at Discount’?

Answer: When a company issues the debenture at a price less than its nominal value, it is a case of debenture issued at discount.


Verma Ltd. issues 10,000, 9.5% Debentures of Rs.100 each, at Rs.90, redeemable at par after 2 years, payable Rs.60 on the application and the balance on the allotment. The debentures are fully subscribed and all the money is duly received. Prepare Journal.


Date Particulars L.F. Amount Dr. Amount Cr.
1. Bank A/c (10000 X 70)                                Dr. 6,00,000
To Debenture Application A/c 6,00,000
2. Debenture Application A/c                          Dr. 6,00,000
To 10% Debentures A/c 6,00,000
3. Debenture Allotment A/c                             Dr. 3,00,000
Discount on Issue of Debentures A/c        Dr. 1,00,000
To 10% Debentures A/c 4,00,000
4. Bank A/c                                                          Dr. 3,00,000
To Debentures Allotment A/c 3,00,000
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